Holy Roman Empire

Chapter 261: Seigniorage

After much effort, on May 12, 1855, the first currency of the New Holy Roman Empire after its establishment — the New Holy Roman Empire Rhenish Guilder was officially issued to the outside world.

The Austrian government had successfully won the right to mint coins. The reserve gold of the state governments was also unified and included in the central bank reserves of the empire, which for the time being were only temporarily deposited in the various states.

It wasn’t that Franz didn’t want to do it all at once. Since he’d just taken some meat out of the bowls of the state governments, further stimulating their nerves could easily lead to a backlash.

Since everyone wanted to keep it in their hands, he allowed it. In any case, the central government sent people to supervise and forbid anyone to use these reserve funds.

Undoubtedly, by acquiring the right to mint, the central government could legally collect seigniorage from the state governments. As the name suggests, seigniorage refers to the revenue obtained after deducting the cost of issuing currency.

Of course, in this era of the gold standard, reserves are still needed and the profits from issuing currency are not as significant as in the later era of the credit standard.

Nevertheless, seigniorage was still an important component of fiscal revenue. What were tobacco and alcohol taxes by comparison? They were pitifully weak, simply incomparable.

The British, in their quest to establish the “pound-gold” system, essentially wanted to collect seigniorage worldwide. Clearly, this required the recognition of countries around the world. Everyone needed to be willing to settle international trade transactions in pounds.

There are only two ways to achieve this: either by using force to subjugate everyone or by a mutually beneficial exchange of interests that persuades nations to accept the pound as an international currency.

So far, the British plan has not succeeded. While the Austrian government had adopted the gold standard, the New Holy Roman Empire unfortunately only recognized gold for international settlements.

What is a pound? Can you eat it?

The governments of London and Vienna had communicated on this issue many times, but in the end to no avail.

The British wanted to collect seigniorage, but so did Franz! Austria was not yet qualified to collect all the world’s seigniorage, but within the sphere of the Holy Roman Economic Union, it could be collected.

Otherwise, why would the Austrian government take the risk of implementing the gold standard reform? It’s important to note that currency reform involves costs and risks.

Under current conditions, Austria’s seigniorage revenues would amount to about 0.5-2% of GDP after the currency reform is completed.

The significant variance in the data depends largely on domestic economic development. The more prosperous the economy, the greater the demand for currency on the market, resulting in higher minting tax revenues.

Of course, this is for domestic purposes. Franz can’t demand that other countries refrain from issuing currency and use only the guilder. At most, he could encourage others to use the guilder in international trade settlements with the New Holy Roman Empire.

This is a long-term endeavor, and in the short term, people will still transact in gold and silver. The guilder can only be widely used within the New Holy Roman Empire.

It is not easy to convince everyone to join the “guilder-gold” system. Without tangible benefits, why would anyone be willing to pay you this coinage tax?

Once the international currency status was established, the demand for gold reserves would decrease accordingly, as everyone could support the value of the currency through the credit of national governments.

The most common currencies were still gold and silver. These hard currencies were the most widely used. The rest, pounds, francs, guilders, were still ordinary currencies.

The British have already begun to promote the pound, and pushing for gold standard reform is a crucial step. Only when everyone adopts the same standard can the pound-gold system be established.

……

Finance Minister Karl said confidently, “Your Majesty, the issuance of the guilder is going smoothly. Our current reserves of gold and silver are sufficient to handle any fluctuations.”

Thanks to the gold and silver bimetallic monetary system of countries in this era, the Austrian government bringing out silver for international settlements would still be happily accepted by all.

If they wait until various countries abandon the bimetallic standard, it will become difficult to acquire gold from the market. At that time, even if they buy up all the gold in circulation, it won’t be enough.

Historically, it was precisely because the market lacked sufficient gold that the governments of countries carrying out gold standard reforms had to compromise with the British by accepting the pound-gold system.

Some countries even had such large gold deficits that they used the pound directly as the standard for their issued currency, pegging their currency value directly to the pound and relying on British credibility to back the value of the new currency.

That’s why it’s generally believed that the peak of British power came after the Boer War. After obtaining South Africa’s gold, the British gained control of most of the gold on the international market, eventually establishing the global monetary hegemony of the pound sterling.

Franz nodded and said, “Do not take this lightly; continue to increase surveillance of the financial markets. If there is a significant outflow of capital, activate the contingency plan immediately.”

Although he didn’t think anyone would cause trouble at this time, the British’s previous actions had already sounded the alarm for Franz. To establish the monetary hegemony of the pound, who knows what else the British might do.

Finance Minister Karl replied solemnly, “Your Majesty, please rest assured. We have already assigned people to closely monitor the foreign capital entering the country. As soon as they start withdrawing capital, we will take action.

We have gathered enough dirt on them, and when the time comes, we can expose it. It should be enough to temporarily confiscate their capital. In serious cases, we can even send them straight to the gallows.”

In this era, all capitalists had skeletons in their closets. Even if they came to Austria and restrained their behavior to some extent, the bloody nature of capitalists was inevitable.

In normal times, to promote domestic economic development, people would look the other way, and these problems would be put aside; everyone would pretend not to see anything.

Now, at a crucial moment, if these inconspicuous dark secrets are revealed, it would be enough to make them walk away empty-handed.

With a criminal record, capital becomes stolen money and it can be decided whether it should be seized or confiscated according to Austrian law.

Anyway, as long as there is evidence in hand, regardless of their backgrounds, the Austrian government has nothing to fear.

Franz instructed, “Continue to keep an eye on them. If they want to leave at this time, send someone to persuade them first. If that doesn’t work, then use extreme measures.

Pay attention to the evidence we have; it must be convincing enough. Even if we have to take action, we can only deal with a few severe cases to serve as a warning.

We cannot turn against all international capitalists, and when taking action, we must also be careful with our approach. The government cannot directly expose itself to danger.”

It was not necessary to do so. Franz still didn’t want to fall out with international capital. This kind of thing is like killing the goose that lays the golden eggs; once you’ve done it once, there’s no chance to do it again.

In the future, it would no longer be possible to issue bonds on the international market or to attract foreign investment. Even normal trade with the outside world would suffer retaliation.

The industrialization process in Austria still requires foreign capital. These people still have some value.

If they are shut down all at once, even if the government gets a large amount of money, it won’t get the same results.

“Yes, Your Majesty!” Karl responded solemnly.

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